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Time for the tontine

Some people are gifted wordsmiths and could sell ice cubes at the North Pole. I’m anti-gifted, I couldn’t give away water in the desert. That’s why I’m putting this forward to writers, because there’ll be some convincing and hard-talking needed. Just sift through my ramblings and see if you also think tontines are the best hope for our financial futures, eh?

Author Thomas Costain wrote a book in 1956 called The Tontine, which as its central thread tracked four characters in their late teens and early twenties. Their parents invested the – at that time enormous – figure of one hundred guineas each in a tontine set up after the battle of Waterloo, with the capital finally to go to war veterans. The venture caught public interest and millions of pounds were invested. Three of the characters were to be the final three survivors, and in their eighties were receiving annual interest cheques worth, in modern terms, hundreds of thousands of pounds. The book covers sixty years of dramatic change in England and abroad, through the Industrial Revolution and the emancipation of women, and is fascinating, you should read it, but the point of this blog is, isn’t it time to bring back a tontine system for old age?

The tontine took its name from Italian banker Lorenzo de Tonti, and at its simplest, one buys in to one’s age group, the funds are invested for a tontine period which usually equates to pensionable age (so those investing at age twenty would be in for a forty year investment period) during which all interest would be reinvested. When the tontine matures, the annual interest is instead divided every year between the survivors. Wikipedia describes it as a combination of a group annuity and a lottery. The older you live, the better off you will be – a dramatic alternative to the future facing most of us now. You are gambling on living longer – and it is the word ‘gamble’ that ended the tontines originally. Gambling on the outcome became so heated that the last few survivors had to be guarded 24/7 so that bookies couldn’t nobble the favourites!

The first tontine was in the Netherlands in 1670, and over the next century there were state tontines in England, France, and some German states. They were optional, not obligatory, and therefore not fully subscribed, which was eventually their downfall – to be truly appealing, the capital has to be huge. I believe the answer is for a government itself to pay in for every registered citizen (maybe, if the ID system is really to go ahead in the UK, as a carrot dangled in front of a reluctant population?) and for people to have the option to increase their stake.

Personally I’m at the age where I couldn’t hope for a tontine period of longer than 10 years (unless I bought into a group with a longer period to run) but I really wish there was one. In my direct line, only one ancestor has failed to make it to eighty. My maternal great-grandmother cleared a century with ease. These bones are built to last, but oi, my finances. Will they stretch another twenty, thirty years? Offer me anything where my investments would improve by the year, and I’m in. A thousand pounds, absolutely. Five thousand? Er – gulp – okay. If I was really, really sure I’d make it through to the final stages I’d beg, borrow or steal to invest every penny I could, to get a bigger percentage of those huge final payments.

If I got knocked over by a car two days after committing the funds, too bad. Them’s the breaks. If I died one day before an annual payment, I lost out for that year and so did my heirs, but then of course I wouldn’t care because my financial worries would be over for good. It is the most personal investment you could ever make.

The Waterloo Tontine of the book was privately run and turned out to be a fraud, but was intercepted and run properly. (Really. Read the book. It’s huge, but fascinating.) Governments, however, really should be looking at bringing back the state tontine. With increasing longevity the tontine for twenty-somethings would potentially only run out of survivors in eighty years, but in the meantime there’s a huge cash injection from the twenty somethings, thirty somethings, forty somethings, etcetera – all the different groups. Those already over pension age would probably start receiving interest payments immediately on their group’s capital, but even for them living the longest would pay off the best.

Anyone with me on this? Who wants a tontine system for themselves, and their kids? If this has caught the eye of just one person who can talk well, and spread the word, that’s a step towards assuring a future for old me. She’ll be ever so grateful.